As part of the government's Making Home Affordable Refinance program, a new program has been released that is aimed toward helping millions of underwater home owners refinance their mortgage and stay in their homes.
The plan, set to be launched on September 7, will allow non-FHA borrowers to refinance into an FHA mortgage at 97.75% of their home's appraised value, with the mortgage balance being written down, or forgiven, to bring the balance down to that ratio.
However, there is one aspect of the program that is problematic, and may make it difficult for many people to qualify. The plan requires the home owner's current mortgage lien holder to write down the mortgage by at least 10%. The success of the plan depends on the willingness of mortgage banks to write down their debt. Undoubtedly, there will be incentives for banks to do so, but that doesn't mean that they all will participate, or that even any will participate.
Regardless, this plan is a ray of hope for millions of responsible home owners who are underwater and have refused to allow their homes to go into foreclosure or short sale.
The FHA Underwater Refinance program will require that the home owner is current on his or her payments and must meet certain qualifying criteria. Beyond the requirement of the current mortgage holder to write down the debt, the qualifying factors are not much different than qualifying for a traditional FHA Mortgage, so many people, especially those with a stable job and decent credit, should qualify.
For more on this program, here is the full FHA Mortgagee Letter 2010-23.